Energy, Transport and the Environment:Providing Energy Security

Iain C. Conn

Abstract Growing global demand for energy as well as recent geopolitical andtechnical concerns and issues have served to move energy security up the policyagenda. At the same time the challenge of stabilising greenhouse gas emissions at‘‘safe’’ levels remains a clear scientific imperative. It is time to stop ‘polishing the2050 diamond’ and to take practical steps today towards a lower carbon, secureenergy future. Moving to action is more important than ever. We must now takethe practical steps available to us that can begin to make a material impact onmeeting both climate and energy concerns affordably. Pathways for both transportand power are available to us today that can radically reduce emissions withoutthreatening energy security and at a reasonable cost to consumers. The geopoliticalrelationships necessary to accelerate progress must also be leveraged to acceleratealignment and convergence towards a coherent set of global energy relationshipsand markets which enable economic progress and stability.

1 Introduction

Energy is at the heart of economic development and indispensible to our way oflife. We need energy to be secure but we also need it to be affordable. Increasinglywe also need lower-carbon energy as part of a sustainable lower-carbon economy.The balancing of these objectives in a robust policy framework is a trulydemanding task and one of the main challenges facing us all in the twenty-firstcentury.

I. C. Conn (&)BP p.l.c., 1 St. James’s Square, London, SW1Y 4PD, UKe-mail: connic@bp.com

O. Inderwildi and Sir David King (eds.), Energy, Transport, & the Environment,DOI: 10.1007/978-1-4471-2717-8_2, � Springer-Verlag London 2012

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Equally we cannot afford to be so taken up with the long-term challenge—whatmight be described as ‘polishing the 2050 diamond’ in the endless search for futureperfection—that we fail to move into action. There are practical steps open to usnow that can deliver material progress towards a secure and lower-carbon econ-omy. We should not hesitate to get started on this long-term journey.

The framing of future energy policy would be a difficult enough task withoutallowing for the unexpected but recent events have been a reminder that theunexpected should always be factored into our thinking. Tragedies such as those inMarch 2011 in Japan can overtake industries and companies as well as countries.Fukushima could well change the immediate outlook for the nuclear industry, justas the Gulf of Mexico accident in 2010 asked fundamental questions of the oilindustry about safeguards in deepwater drilling.

Any serious review of energy policy consequently needs to begin with an ‘eyeswide open’ look at the realities of global energy. This is what BP has tried to do inits Energy Outlook to 2030 [1] publication. This essay starts with a look at thisanalysis before reviewing some of the practical steps open to policy-makers andthen looking at the international alignment that will be needed to deliver thedesired outcomes. There are many policy choices to be made and they can havefar-reaching consequences. It is hoped that this paper can provide some usefulsignposts for this task.

2 Energy Outlook 2030

BP’s best judgement of the likely path of global energy markets to 2030 takes intoaccount anticipated policy, technological and economic changes [1]. It is in manyways a ‘reality check’, a best view of the future energy world weighed on abalance of probabilities; it’s not a ‘business as usual’ extrapolation (Fig. 1).

It recognises that global energy demand is fundamentally driven by populationand GDP growth. By 2030, global population is projected to rise by around 20%but global income is projected to double. Energy consumption is likely to continueto grow as a result. This upward pressure will be mitigated to some degree byincreased efficiency, which will be reflected through a reduction in energy inten-sity or the energy needed to produce one unit of GDP (Fig. 2).

Three key points emerge from this analysis. First is the projection of a 39%absolute increase in global energy consumption between now and 2030—a hugefigure, but much lower than the expected doubling or more of global GDP.

Second is the changing balance of the energy world. In 2010 the total energyconsumptions of the non-OECD and OECD were similar. However, by 2030 it isexpected that the non-OECD will grow by a further 68% but OECD consumptionwill remain nearly static. This rebalancing has significant implications for thegeopolitics of global energy and this is discussed in more detail later in this paper.

The third key point is on global energy mix. Energy evolution has never beenquick, due to the scale of the ‘‘installed base’’ and the pace of technology.

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However, over time important shifts in the global energy balance are clearlyevident. Although oil use continues to grow gradually in absolute terms, the shareaccounted for by oil as a proportion of total world primary energy is decliningsteadily, while coal is maintaining its market share and growing significantly inabsolute terms. However, by far the fastest growing source of energy to 2030 willbe renewables. These include biofuels, produced and traded as a global com-modity, which by 2030 could meet about 9% of transport fuel demand. Equally,despite these impressive growth rates, non-hydro renewables including biofuelswill still account for only some 6% of global primary energy by 2030. Hydro andnuclear are projected to account for another 7% each of global primary energyover this period (Fig. 3).

The balance of the remaining 80% will be split almost equally among oil, coaland natural gas. Of these, natural gas will increasingly be the fuel of choice forpower generation. It is a plentiful resource, flexible and economic and burns withhalf the CO2 emissions of coal and half the capital cost per unit of generatingcapacity. It is also ideal for matching with intermittent renewable supplies. As a

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Fig. 1 Shows expected global energy consumption and energy mix from 1990 through to 2030.(Published with kind permission of � BP 2011. All Rights Reserved.)

Energy, Transport and the Environment: Providing Energy Security 15

result, natural gas is expected to be the ‘big winner’ among the hydrocarbon fuels,gaining market share from both coal and oil.

Under much more aggressive climate policies, it is still unlikely that the worldwill get near to the Intergovernmental Panel on Climate Change (IPPC) FourthAssessment Report’s Working Group III stabilisation target of 450 parts permillion of atmospheric CO2eq. required to keep temperature increases within reachof 2�C. Ultimate stabilisation levels will not be known until well into the nextcentury. However, the choices made in the next 20 years, particularly in powergeneration, will set the likely long-term path (Fig. 4).

This is a sobering reflection but the purpose here is not to step back from thechallenge but to caution a sense of realism into the energy policy debate. It can beasserted that the promotion of renewables will create employment and substitutefor oil and gas imports. However, the world will still be hugely dependent on fossilfuels in 2030 and there will be economic and competitive consequences forcountries adopting this approach if the remainder of the world is using a more cost-competitive and carbon-intensive energy mix.

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3 Practical Steps Forward

The challenge is significant but equally there are policy choices open in tech-nology, energy mix, carbon pricing and effective markets that can help to meet thetriple objectives of energy security, competitiveness and climate change.

Of the areas of potential public policy action that are open to legislators, fourcan be seen as relatively easier to achieve: encouraging competition; energyefficiency programmes; promoting energy research and development; and, edu-cation and communication. Others are much harder: developing long-term andeconomy-wide price signals for CO2; the implementation of transitional incentivesto speed up the deployment of near-commercial technologies which need ahelping-hand down their cost curves; targeted regulatory action; and, internationaltax and trade mechanisms. Most governments find, in reality, that even that the‘easier’ policy areas present significant challenges.

The first, and best, practical step to take—good for security, good for afford-ability, good for availability and good for lowering CO2 emissions—is to increase

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Global Energy Mix

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Energy, Transport and the Environment: Providing Energy Security 17

the efficiency of energy use. Transport accounts for around 23% [2] of global CO2

emissions and remains a fast growing sector. By far the most cost effective way tomore efficient transport, without fundamentally changing patterns of consumptionor existing infrastructure, is greater efficiency of existing internal combustionengines. Combining greater efficiency with progressive hybridisation and thecorrect biofuels can significantly reduce emissions from transport.

The blue line in Fig. 5 shows declining CO2 per km driven, versus the addi-tional purchase cost of vehicles with new technology, relative to conventionalgasoline cars today. The key is to distinguish between near-term and longer-termoptions. In the longer-term—beyond 2030—battery electric vehicles and maybeeven hydrogen fuel cells are likely to play a more material part in vehicle trans-port. It will be more rational to do this once the grid has been more fully decar-bonised in order to deliver the full CO2 reduction potential. Electricity storagetechnology also needs to evolve for the performance and cost of batteries to becompetitive. Even just on environmental grounds, the current average emissionsperformance for battery electric vehicles in Europe remains above that which canbe achieved with hybrids. Electric vehicles will have their time, but not just yet.

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Global CO2 Emissions

Fig. 4 Shows the projected trend of global emissions in line with these projections of energymix. Even with reducing energy intensity and tightening national, regional and internationalclimate change policies, global CO2 emissions are forecast to rise by 27% by 2030. (Publishedwith kind permission of � BP 2011. All Rights Reserved.)

18 I. C. Conn

In the shorter term, at least up to 2030, by far the most effective pathway tolower-carbon transport is to make existing vehicle engines more efficient. Thereare major gains to be obtained from advanced gasoline engine technology inparticular. Combined with step-by-step hybridisation, we can see the potential fornearly halving CO2 emissions per km at a much lower cost than for a batteryelectric vehicle.

The green line in Fig. 5 shows the additional benefit that can be gained from theuse of sustainable biofuels.

When such a vehicle pathway is combined with the use of sustainable biofuelsit becomes even more effective in reducing CO2 from transport and can reduceemissions by about as much as electric vehicles run off a gas-powered grid—but ata fraction of the cost. For this reason, several companies are already investingheavily in the global supply of sustainable and CO2-efficient sugarcane and ligno-cellulosic-based gasoline components. The biofuels also usefully add to thediversity of supply of future liquid transportation fuels.

A key point is that these technologies are either already available or experi-encing valuable breakthroughs and build on existing deep industrial strengths andcapabilities. We can be confident that such an approach can deliver progressive,achievable and material efficiency gains and CO2 reductions in the transport

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Fig. 5 Declining CO2 per km driven, versus the additional purchase cost of vehicles with newtechnology, relative to conventional gasoline cars today (blue) and the additional benefit thatcan be gained from the use of sustainable biofuels (green) (Published with kind permission of� BP 2011. All Rights Reserved.)

Energy, Transport and the Environment: Providing Energy Security 19

sector. The pathway for transport is clear and can be pursued today, making amaterial impact using the existing energy infrastructure—a point not to be over-looked given the costs associated with a switch towards an electrified roadtransport system.

The other key use of energy is for electrical power generation, accounting foraround 40% [3] of global CO2 emissions. Economic growth in the developingeconomies will demand huge global additions of electrical power capacity by2030. The types of capacity installed are likely to impact energy security and CO2

emissions to 2050 and beyond. If we make the wrong decisions now, we are lockedinto the consequences for a long time to come. For power generation by far themost productive pathway is composed, once more, of energy efficiency plusgreater use of natural gas in combined cycle gas turbine plant, growth in nuclearand ultimately renewables.

Some of the reasons why gas is an attractive and practical policy choice havealready been mentioned. It is a plentiful resource, flexible and economic and burnswith half the CO2 emissions of coal, and half the capital cost per unit of generatingcapacity. In addition, the flexibility of gas fired plant can be very effective incomplementing the natural intermittency of wind and solar power operations. Onthis basis, natural gas should be seen both as a preferred transition fuel to a lower-carbon economy and as a fundamentally advantaged energy supply option in itsown right. The surprising and regrettable thing is that, instead of incentivising gasin power for these reasons, policymakers risk squeezing gas out—by promotingexpensive, risky and relatively inefficient zero-carbon technologies that are not yetready for deployment on a very large scale, and themselves risk being supersededby more advanced technologies fairly soon. Zero-carbon power technologies areevolving fast and, like electric vehicles, the time will come for them to bedeployed at scale. In the meantime, natural gas can deliver low-carbon andsecurity benefits for power generation on a large scale at low cost now, just asefficiency plus biofuels can deliver the same for transport. This is perhaps the mostobvious area where governments need to ‘stop polishing the 2050 diamond’ andmove ahead with these practical pathways as soon as possible.

One final but important point is on the physical availability of natural gas.Recent appraisals of global unconventional gas reserves [1], based on the hugeexpansion in the production of shale gas, tight gas and coal bed methane in the US,could add as much as 30 years of supply to proven global gas reserves. Thetransformation of the North American gas market has had the knock-on effect ofdepressed gas prices: US gas prices are now chasing parity with coal rather thanfuel oil. This is leading to the displacement of coal in US power generation onprice. Plentiful domestic gas supply has also freed up cargoes of liquefied naturalgas (LNG), which had originally been targeted for the US market, to be attractedby prices offered in other regions. In Europe, this has already caused pressure ontraditional oil-indexed contract prices as unprecedented amounts of cheaper spotLNG became available from 2009 and into early 2011. LNG that can be divertedfrom North America is now offering the possibility to Japan of alleviating powershortages thereby resulting from the devastating earthquake of 11 March 2011.

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This increased availability of gas supply from diverse sources today, together withthe anticipation of additional indigenous supplies of unconventional gas tomorrow,has very substantially reduced concerns over gas security of supply.

So, having looked at the practical steps which can be taken now, the focus in therest of this paper is on three key external relationships and how they will shape theenergy future in which the important energy choices have to be taken.

4 Europe and Russia

These policy choices are rightly a central preoccupation in European energy policythinking. However, given the approach set out in the first part of this essay, it canbe argued that the basic objectives and direction of travel are well understood andthe main questions are around implementation and competitive impact. It canconsequently be argued that the really big choices for Europe are not so muchabout internal energy policy as external energy relationships. If Europe does notget these external choices right, policy implementation will become disconnectedfrom the global picture with damaging implications for both economic competi-tiveness and energy security.

Europe is a significant global energy power but other countries and regionshave an increasing interest, and say, in energy too. Furthermore these interests arechanging in quite fundamental ways. In 2010 China became the largest globalenergy consumer, accounting for around 20% of global energy consumption. Indiaand Indonesia are following and Brazil is emerging as both a major producer andconsumer. All of these shifts are real and substantive and cannot be wished away.

Geography and history ensure that Europe and Russia are bound together in thesame political and economic space. A theoretical question can be asked about theneed for a Europe/Russia relationship. In reality it is evident that there is nochoice—Europe and Russia are obliged to live and work together and the only realchoices are about how well or otherwise to go about this task.

This is true right across the energy sector. An extraordinary network of naturalgas pipelines joins the Eurasian continent from the depths of Siberia to the coreEuropean energy markets. The pattern for oil pipelines is basically similar. Russiaaccounts for over 30% of European oil supplies and around 23% of natural gas [4].In total, Russia supplies about one quarter of European energy requirements,without counting supplies from other countries which also transit via Russia. Theinfrastructure that makes this possible should be seen not as a liability but avaluable asset. It joins producers and customers and allows both to find compet-itive advantage in a global market.

Importantly for Europe, this infrastructure also provides a competitive basisfor energy to continue to flow west, even as demand continues to grow in the east.The supply lines have also proved to be reliable and Russia kept energy suppliesflowing to Europe throughout the course of the Cold War. Of course, this infra-structure is not and cannot be exclusive in terms of access into the EU market.

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Europe will also inevitably encourage other gas infrastructure systems, such as theSouthern Corridor, North Africa pipelines and LNG re-gasification to find theirplace in the market, while also making it easier for gas to cross internal memberstate borders in case of gas shortages in any part of the EU (Fig. 6).

So Europe and Russia have everything to gain from working together and muchto lose from standing apart. Gains include energy security, co-investment oppor-tunities, key sources of economic competitiveness and stability on a long border inan increasingly uncertain world.

5 China

Over the last 10 years, Chinese GDP has almost tripled and energy consumptionhas more than doubled. According to the IEA [5], this growth has made Chinathe leading global emitter of energy-related CO2 and the Chinese leadership

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Fig. 6 Gives a view of the diversity of natural gas options open to Europe through to 2020 andbeyond. To this can be added the potential for unconventional gas within Europe’s ownboundaries. There are many choices but a stable and mutually beneficial relationship with Russiawill also strengthen the security of supplies from the Caspian, Central Asia and the Middle East.Unless Europe becomes self-sufficient in gas from unconventional sources such as shale gas,Russia will in all circumstances remain an indispensible partner in Europe’s energy mix(Published with kind permission of BP 2011. All Rights Reserved.)

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recognises that this energy intensive pattern of growth is not sustainable into thelonger-term, not least given China’s concern for energy security given its growingimport dependency for fossil fuels. In the last Five Year Plan ending 2010, Chinaset a target to reduce energy intensity of GDP by 20% and official statements [6]show an achieved outcome of 19.1%. China also has one of the world’s largestprogrammes to develop non-fossil fuels, with the intention that non-fossil fuelsshould account for 15% of total energy consumption by 2020 [7].

The next Five Year Plan up to 2015 focuses on the issues of energy mix andsustainability and sets out an intention to:

• increase the share of non-fossil fuels in total primary energy consumption from8.3 to 11.4%

• increase the share of natural gas in the total energy mix from 4 to 8%• reduce energy GDP intensity by 16%• reduce CO2 GDP intensity by 17%.

However, despite all these efforts, it needs to be recognised that China is still adeveloping country, with GDP per capita on a Purchasing Power Parity basis ofaround $6,000 per annum, compared to $30,000 for the EU27 and $45,000 for theUS. As this gap closes, Chinese growth will continue to drive global energydemand. It is expected that Chinese total energy demand will increase by 80% overthe next 20 years, accounting for over 40% of the global energy demand increasein this period [1] (Fig. 7).

However, there is no need to see Chinese energy consumption as a cause for globalalarm, nor a threat to good energy policy. The reality is that China’s success isincreasingly at the heart of a prosperous globalised world. The global financial systemhas been largely stabilised by Chinese finance. Chinese imports underpin worldexport demand, while Chinese exports satisfy global consumer needs and supportinternational competitiveness. This is also the case in the energy sector. China’ssuccess in energy diversification, energy efficiency and adoption of lower-carbontechnology, is presenting major economic opportunities as well as being critical forglobal energy policy success. Indeed, China’s ability to deal effectively with itsenvironmental challenges will largely determine the global environmental outcome.

So in reality there is little choice—in terms of self-interest—except to engagewith China at every stage of its journey. China’s success is and will be shared bythe rest of the world. For business there are worries—not without reason—aboutsecurity of intellectual property and access to investment opportunity. Theappropriate means must of course be found to protect these and other interests.Equally, other governments need to be clear that non-engagement is no choice atall, although the manner of engagement is a critical choice. The issue is whethercountries and regions can make the crucial step to align around common interests,or will these be lost in the traditional but ultimately futile search for narrowcommercial or national advantage.

On this basis there is a strong argument that engagement with China shouldstand at the very front of the foreign policy agenda, providing coherence on everyaspect of analysis, assessment, representation and strategy. China is not only

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changing within its borders, it is also changing the world. This change will bean important consideration for future energy policy and governments need tounderstand and make sure they are part of this change. Working together, it shouldbe possible to reach alignment on a coherent approach to energy policy, encouragepartnership between energy companies and co-develop and deploy key researchand technologies.

6 The United States

Finally it is important to turn to the United States, where the same challenges inenergy policy need to be addressed at a time of economic recovery.

There are differences of course. The US will remain a major importer of oil but, incontrast to Europe and China, will also continue to be a significant oil producer. The

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Fig. 7 Shows the impact of this growth on Chinese oil and natural gas consumption and imports.The darker green shows combined domestic oil and natural gas production. The lighter greenshows total oil and gas consumption and illustrates the import ‘gap’. It can be seen that Chineseoil demand is expected to more than double by 2030, accounting for 65% of global oil demandgrowth from today. By 2030, oil import dependency is projected to be at levels similar to Europe.However, gas import dependency may slow after 2020, as a result of the development ofindigenous unconventional gas. (Published with kind permission of � BP 2011. All RightsReserved.)

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US will, in addition, be a major producer of natural gas, where unconventionalsources give it a good chance of complete supply independence for the next100 years or more. Given this reality, it might incidentally be thought a surprise thatthe coal industry can lobby so successful in resisting the promotion of natural gas.

However, the differences in energy balance should not obscure shared widerinterests. In a multi-polar world, there is a common interest in aligning the keyglobal relationships for the future—whether with Europe, China or the other majoremerging economies. The intention should be to address these relationships asfriends as well as competitors.

In energy policy there is much to gain from an aligned approach—whether onenergy markets, financial regulation, carbon pricing, new energy technologies orkey international relationships. It makes no sense at all to divide internationalmarkets by ill-matched policy and regulation, still less by fragmented internationalaction. The US and EU economies could be viewed as a single energy market inthe context of intense global competition and this points to the importance ofaligned energy policy. This does not necessarily mean a treaty but it does requirebroad alignment on the pace and intensity of policy interventions, in order to avoidunintended and damaging dislocations on both sides.

A good example is tariff policy on biofuels. If both sides of the Atlantic are notaligned, this will create an unintended arbitrage resulting in biofuels flowing pref-erentially to either the US or Europe. This dislocation could also prevent the evo-lution of the Atlantic basin fuel pool as a commoditized source of cheap bio-components. However, perhaps the biggest issue and opportunity is in CO2 pricing.Europe is pursuing cap and trade for CO2. The US is still debating its own policyapproach. In the end which mechanism is used is not important. What matters will bethe timing and intensity of the application of such policy measures. If these are notcoherent, then such policy interventions will result in dislocations in the marketsbetween different regions. If coherent, policy interventions can crystallise alignmenton global CO2 pricing and accelerate the global process. No third country or regioncould afford to ignore an aligned EU and US in carbon markets and pricing.

Therefore, the most important reason for alignment is that it would result inmore rapid international climate action and provide a critical accelerant to thenecessary but slow UNFCCC process. It would probably also encourage alignmentwith China. If it were possible to achieve this coherence of the major trading blocs,the world would find that it had successfully laid the foundation for global energypolicy in the twenty-first century.

7 Conclusions

This essay has looked at some of the challenges and choices facing the world ofenergy looking to 2030 and beyond.

The provision of energy security today is more complex than before, particu-larly if you embrace the challenges of the shifting mix of energy demand growth

Energy, Transport and the Environment: Providing Energy Security 25

and that of climate change. For many decades, the solution to energy security haslargely been one of secure supplies, largely of fossil fuels, combined with a drivefor limited diversification. Energy demand continues to increase, and we will stillbe dependent on fossil fuels for decades to come. However today, ‘‘more energy’’and ‘‘alternative energies’’ will not solve the equation on their own. We must addthe hugely important ingredients of ‘‘less energy’’ (i.e., energy efficiency), ‘‘energyresearch and development’’, and, if we are to get anywhere quickly, more pro-active ‘‘foreign energy policy’’ along key axes. These of course must be bound upin sound energy policy within each major jurisdiction to ensure that competi-tiveness and economic growth are also maintained. This is a complex equation.

There is no one answer for energy security and different countries and blocswill take different pathways. The growth in global energy demand is such that allenergy sources and technologies will be required. However, there are todaypractical pathways which make a material difference in transport and power andthese should be pursued with urgency as a matter of pragmatic imperative. Bothstart with energy efficiency using today’s technologies, and natural gas, biofuels,and indeed nuclear power can all play major roles in moving economies materiallyin the right direction while we also research and innovate around longer-termtechnologies and options. The important thing is to stop only ‘‘polishing the 2050diamond’’ and start to make practical and material steps today through imple-mentation of the right policies.

Finally, it is also clear that the very necessary UNFCCC process could see somewelcome acceleration if key economic blocs could strive towards energy policyalignment and coherence. This can be achieved without being bound up in a formalagreement or treaty. The US and Europe face very similar challenges, withindustries in a similar stage of development. Transatlantic alignment on theintensity of policy changes could make a material contribution. Engagement andalignment around areas of mutual benefit with a number of key economic blocssuch as Russia and China will also accelerate progress.

Today there are some really big choices which have to be made if we are toachieve progress while also delivering the provision of greater energy security.Although progress is slow, we have come a long way in the last 15 years, and thereare some very pragmatic options available, both within our economies andbetween them, which provide more than a glimmer of hope.

References

1. BP p.l.c. (2011) BP energy outlook 2030. BP p.l.c., London, based on data from theInternational Energy Agency, The U.S. Energy Information Administration, the UnitedNations Statistics Divison, The World Bank et alia

2. King DA, Inderwildi OR (eds) (2010) The future of mobility roadmap, 2nd edn. OxfordUniversity, Oxford

3. International Energy Agency (2010) World energy outlook. International Energy Agency,Paris. ISBN: 978-92-64-08624-1

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4. BP p.l.c. (2011) BP Statistical review of world energy. BP p.l.c., London5. International Energy Agency (2010) CO2 emissions from fuel combustion. International

Energy Agency, Paris. ISBN: 978-92-64-08027-86. U.S.-China Economic and Security Review Commission (2011) 12th five-year plan

(2011–2015). http://www.uscc.gov/researchpapers/2011/12th-FiveYearPlan_062811.pdf7. National Development & Reform Commission (NDRC) (2007) Medium and long-term

development plan for renewable energy in China. National Development & ReformCommission (NDRC), Beijing. http://en.ndrc.gov.cn/

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